In this third column on the effects of zoning reform on ‘missing middle’ dwellings – duplexes, dual occupancies, townhouses and low-rise apartments – planning columnist MIKE QUIRK looks at land values and housing affordability.

A major objective of the zoning reforms announced by the government on May 20 is to increase the supply of affordable housing in established areas.

But will the reforms provide sufficient affordable dwellings with designs that meet the needs of occupants? 

Auckland is often used as the poster child of those advocating upzoning. In 2016 three quarters of its suburban area was upzoned, which resulted in an increase in dwelling construction and a fall in rents.

However it has been suggested the fall in prices was influenced by the cyclical nature of markets and recent higher population growth has led to rents increasing faster than the national average. A downside has been a haphazard development pattern that has been difficult to efficiently service. 

The cost of the housing is a product of land values (partly influenced by zoning) and construction costs including profit margins and government charges.

Zoning does influence the variety and availability of housing in established areas but provision is also the outcome of other factors including underlying demand, cost of finance, labour and materials; design and construction quality; price, land values; and the lower appreciation in values of higher density dwellings when compared to detached houses. 

Land values are higher in areas of high accessibility while medium and higher density housing have higher construction costs than detached dwellings.

Under current zoning, the economics of development have led to few affordable dual-occupancy dwellings, terraces or low-rise apartments being developed.

Will reforms such as the possibility of two-storey flat development, the ability to develop on blocks as small as 600sqm and to subdivide, result in a substantially increased supply and affordability? 

Windfall gains to existing property owners

Upzoning will increase the value of land with the largest increases in areas of high accessibility. In doing so it delivers windfall gains to existing property owners. 

To improve the financial viability of missing-middle projects it is sometimes argued the lease variation charge (LVC) be reduced or removed.

Its removal may widen the housing choice of the reasonably affluent, but would do little to address the housing needs of many lower and middle-income households, including those with children, who have little choice but to live in unsuitable higher density dwelling. 

Given the level of housing need and the undersupply of social housing it would be perverse to use the LVC, intended to recoup some of the increase in land values for the community, to subsidise the housing choice of relatively well-off households.

If the provision of affordable housing is the aim, the policy focus should be on constructing social housing, overcoming labour and material shortages, reducing taxation concessions, lowering construction costs through innovations such as manufactured housing, avoiding policies that stimulate demand and improving the design and quality of redevelopment dwellings. More action is needed from all levels of government.

Housing affordability problem is extreme

The housing affordability problem is extreme. The Grattan Institute estimated in Canberra the median dwelling price increased from 3.1 times median household incomes in 2001 to 6.1 times in 2024. Homelessness has increased and the number of social housing dwellings fell between 2012 and 2024, despite an increase in the population of more than 90,000.

ACTCOSS in 2022 estimated there was a shortfall of 3100 social housing and 2400 affordable rental dwellings. 

The massive decrease in housing affordability since 2001 has limited the tenure, locational and dwelling choices available especially to the most disadvantaged.

The Anglicare 2025 Rental Affordability Snapshot found nationally only three of 51,238 rental listings were within the reach of somebody on Jobseeker allowance and less than one per cent were affordable on the full-time minimum wage.

The root cause of the housing crisis is the use of housing as a vehicle for wealth creation. This can be most effectively addressed by reform of negative gearing and capital gains taxes and consideration of an inheritance tax.

The concessions represent revenue forgone each year in the tens of billions of dollars. The absence of a capital gains tax on the family home encourages the development of larger and more resource intensive homes. Commonwealth rent assistance payments have exploded in response to the high rent increases.

Improving housing supply is the policy focus

Most voters will not support reforms that reduce their wealth. Even modest reforms such as grandfathering and limiting investment properties to one or two dwellings have experienced strong resistance. 

By default, improving housing supply is the policy focus. If past performance is a guide, (eg since self-government the public housing share of the housing stock in the ACT has fallen from 12 to under 6 per cent), funding will be insufficient.

Some additional funds could arise if governments divert funds from less urgent projects (light rail in the ACT context). Without major taxation reform, insufficient housing will be provided. 

Those in greatest housing need deserve more than crumbs from the rich man’s table.

Mike Quirk is a former NCDC and ACT government planner.

How a regional growth strategy can make sense