“Tiny houses” are variously defined, but Wikipedia offers a useful
description: “The tiny-house movement is an architectural and social
movement that advocates for downsizing living spaces, simplifying, and
essentially "living with less." According to the 2018 International
Residential Code, Appendix Q Tiny Houses, a tiny house is a "dwelling unit
with a maximum of 37 square metres (400 sq ft) of floor area, excluding
lofts." The term "tiny house" is sometimes used interchangeably
with "micro-house". While tiny housing primarily represents cheap,
simple living, the movement also sells itself as a potential eco-friendly
solution to the existing housing industry, as well as a feasible transitional
option for individuals experiencing a lack of shelter.”
Think Gypsy wagons. Alluring as the description is, the tiny
house promise of being eco-friendly and low cost ignores one very inconvenient truth:
the land on which it sits and the services provided to that land – if they meet
the bewildering array of standards and regulations – are anything but low cost
(or even eco-friendly).
This was dramatically highlighted by some recent research
from the engineering team at Colliers (who acquired Peak Urban). According to their
research, which is based on cost estimates for around 6,800 lots and 3,400 in
construction, across seven regions in South East Queensland, the civil
construction cost per lot is now $157,833. This is 37% more than their
2021 estimate.
Remember, this is just the civil infrastructure cost. It
does not include the raw land cost – it is just the cost of providing services
to that piece of land – water, sewerage, roads etc. Those services need to meet
increasingly higher standards which, combined with today’s market realities,
are driving the cost surge. According to the Colliers Report:
“Increases in civil construction costs due to supply
constraints are the most obvious reasons for increased overall costs. However,
skilled labour shortages have meant that some businesses are paying overs to get
people (if they can get them), but it also means that it is taking longer to
get things done. Authorities are suffering the same, with some being forced to
contract works to external parties which further diminishes industries capacity
to keep up. It’s a perfect storm that is leading to higher input costs across
the board.”
Ironically, some of the drivers of these costs relate to
standards which aren’t always the most eco-friendly or cost friendly. Arguments
against “out of sequence” land development, for example, usually revolve around
the roll out of trunk infrastructure (things like water and sewer mains, or
roads for example). The argument being that the trunk infrastructure must be
supplied in a sequential manner for cost reasons. Yet large scale off-grid infrastructure
options – water collection or waste water treatment for example – which can provide
environmentally superior and lower cost solutions, are often prohibited by
regulation. You are not allowed, for example, to use collected rain water for
anything but flushing your toilet or watering your garden. We have standards! And
your wastewater must be pumped many kilometres through expensive concrete sewer
pumps and energy hungry pump stations to reach a waste water treatment plant,
even though large scale localised treatment options are technically available and
environmentally superior. Once again, we have standards! Using recycled
materials for road surfaces? Standards again.
So back to our tiny house. The cost of bringing services to
the land on which it sits is now around $150,000. The land is also subject to a
per-lot infrastructure charge, and the developer who has generated the lots has
been subject to a range of taxes from land taxes to stamp duties to application
fees and other regulatory and compliance costs. Plus there’s the actual cost of
the raw land. You can see how the physical cost of a block of land – even one
as small as 400 square metres – is now starting at around $250,000 or $300,000 –
and that’s at the lower end (depending on location).
Then you get the pleasure of adding the house, which is also
subject to a range of compliance costs and taxes – including the GST. According
to the Housing
Industry Association (2023):
“In 2019, the Centre for International Economics (CIE)
released a research report Taxation on the Housing Sector which identified the
costs associated with bringing land and housing to market and provided a
breakdown of these costs as either resource costs, regulatory costs (red tape),
statutory taxes (federal, state and local) or excessive charges. The research
showed that the combined costs of the statutory taxes, regulatory costs and
excessive charges equate to 50 per cent of the cost of a new house and land
package. The situation since 2019 has only worsened.”
Many years (2007), when I prepared a report “Boulevard of
Broken Dreams – the Future of Housing Affordability in Australia” for the
PCA – that cost was around a third. It’s now half. No wonder things are getting
worse. (If you want a copy, I can email you one just let me know).
Even more concerning is the equity argument. Buyers of an
entry level new house and land package on the urban fringe – our archetypal
young family of first home buyers – will pay a great deal more in embedded taxes
and charges on their new home than someone buying a multi-million dollar established
home in, for example, the privileged inner-city market of New Farm (or Balmain
for a Sydney equivalent). Our young buyers are buying into an area where the
infrastructure is largely still a promise of things to come. Our New Farm
buyers are buying into a market where other taxpayers have generously funded
the extensive hard and social infrastructure which has made the suburb so desirable,
but they pay no infrastructure levy, no GST, and no other regulatory or compliance
costs. They may grumble about stamp duty but it is far less than the combined
tax bill faced by our young family.
So, the solution to this mess of regulation and tax, which
has made new land for housing a complex and costly exercise, is to suggest building
a tiny house of less than 40 square metres on land which costs over $150,000 to
service, let alone the cost of the land itself?
Sorry Noddy and Big Ears, it’s a nice idea, but we’re in the real world now.
