The economic, social and environmental benefits of building up rather than out

Over the past few years, we’ve become all too aware that we don’t have enough homes in New South Wales. The ABS reports that residential rents in Sydney – the best barometer of housing affordability – rose 8.6 per cent over the 12 months to September 2023. For those struggling with the cost of keeping a roof over their heads, there seems to be little relief in sight.

Earlier this month, the NSW Productivity Commission published the latest report in our housing series, What we gain by building more homes in the right places. We show that ‘building up’ rather than ‘out’ also has economic, social and environmental benefits.

The economic benefits are clear. Cities like Auckland in New Zealand have shown that relaxing restrictions and allowing more homes to be built can boost the supply of housing and reduce rents by up to 35 per cent. Lowering residential rents increases people’s disposable income by freeing them up to spend more on other goods and services. This is especially important for low- and middle-income households facing cost-of-living pressures.

In a larger and denser city, workers can access more jobs that fit their skills, experience and ambitions. They can build their skills much faster, and be paid for it. More homes near jobs can help women stay in the workforce, reduce the gender pay gap and alleviate families’ childcare costs.

Abundant housing improves living standards in other ways too. When we build more homes around public transport hubs, workers’ commutes are shorter, allowing more free time for recreation and family. More active transit and public transport use can also reduce air pollution. And those living in growing local communities benefit from a wider variety of goods and services that an increased customer base allows.

There are also environmental reasons to build up rather than just out. Our cities have a finite amount of land. Sydney, for example, is hemmed in by the Pacific Ocean to the east, the Great Dividing Range to the west, and national parks and waterways to the north and south. As fires and floods from climate change begin to bite there is a limit to further sprawl.

Higher density can also be a powerful tool for social uplift and increasing equality. Improving disadvantaged students’ access to higher-performing schools by building more homes in desirable catchments can boost test scores by an equivalent of three years of schooling.

If we’re to get ourselves out of this housing crisis, part of the solution is building more well-located homes, including apartments. In Sydney, the median advertised rent for a detached house in 2022-23 was $680 per week, compared to $600 for an apartment, according to CoreLogic.

Having lived in an apartment myself for the past three years, I’ve seen how the benefits of an apartment can outweigh the smaller space for many people. As empty nesters, an apartment has allowed my wife and I to downsize. I don’t have to mow the lawn every fortnight, and we’re close to our children and grandchildren. But in many areas, zoning restricts the housing options available. Many who downsize have to move away from their family and community.

I understand that some people scoff at the prospect of living in an apartment. Since I was young, the quintessential Australian dream has been to live in the suburbs in a detached house with a backyard big enough for a Hills Hoist clothesline. That choice should remain available to those who want it and can afford it. Apartments, townhouses and manor houses (single buildings with three or four dwellings on one lot) aren’t for everyone, but they do make it possible and affordable for more people to live in our city’s most desirable locations. People deserve that choice.

Successes in places like Auckland show that change is possible. To get there, we need to broaden the conversation we’re having in NSW. Existing residents traditionally get the biggest say in new developments, but those who would benefit the most from new homes – younger people, empty nesters, women and renters – too often go unheard. We need to start listening to them. If we don’t, they’ll start voting with their feet.

The NSW Productivity Commission has published a series of reports on housing in the last year. Its report Building more homes where people want to live argued for allowing more apartments to be built in Sydney’s inner suburbs, as well as more townhouses and manor houses. It followed up with Building more homes where infrastructure costs less, which showed that infill development closer to Sydney’s CBD can save up to $75,000 per home in infrastructure costs.