No Noddy, you and Big Ears won’t solve housing with a tiny house

One of the more infuriating ideas that seems to have more followers than it deserves is the notion that “tiny houses” are part of the solution to the housing affordability (and availability) challenges being faced in large Australian cities.

“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.