Addressing the housing crisis will require policy change from all levels of government, addressing demand and supply side issues, as well as the investment of immense resources by the private and public sectors.

Market forces don’t always lead to optimal outcomes

In this recent article, I explain why rezoning large land areas for greenfield housing on the urban fringe may seem like a promising solution to the housing supply issue. Still, in reality, it risks the sustainability of our cities and imposes significant hidden costs on homebuyers and the broader community. Instead, we need to use the established inner-city and middle-ring suburbs better to supply new housing.

Governments and property developers are frantically searching for underutilised lands that can accommodate homes, preferably homes that can be feasibly developed in the short term. However, let’s not pretend that gaining access to available sites and/ or redevelopment opportunities in established suburbs that stack up financially is easy. Established suburbs have a fixed land supply, and prospective land users must compete. If this competitive dynamic is left to play out in an unregulated land market, those who can most profitably use the land can afford to pay the most for it.

So, should we let the competition play out in an unregulated land market? Will the invisible hand of the market lead to the optimal land allocation to competing land uses? No, it will not. If left to the market, competing land uses will be scattered haphazardly across our cities, compromising economic productivity, liveability and environmental sustainability. That’s why we need strategic land use regulation.

Industrial lands in established suburbs

If we accept that cities benefit from strategic land use regulation, that doesn’t mean we shouldn’t change the regulations as our cities evolve. The ever-present question is: Should we change regulations now? Specifically, given our housing crisis, should we rezone industrial lands in established suburbs now to enable more housing?

Unfortunately, there is no simple answer to this question. Competing land use demands and development feasibility vary widely across established areas. But one thing is certain—we must recognise the benefits of industrial lands in established suburbs to make informed decisions.

Industrial lands play important functions every day in established suburbs. They accommodate:

• There is a wide diversity of jobs, often highly productive, particularly in manufacturing, logistics, and creative industries.
• Logistics, warehousing, and distribution hubs are crucial for just-in-time deliveries to businesses and consumers residing in the inner city.
• Waste management, construction supplies, vehicle repairs and other functions that service the needs of inner city residents, businesses and projects.

By accommodating these land uses, industrial lands in established suburbs support:

• Diverse local economies and mitigate against overreliance on service-based industries for employment and wealth generation.
• Resilient local supply chains, remembering what happened in the COVID pandemic when local businesses and consumers couldn’t access necessary products due to international supply blockages.
• Productive industries through the shared but competitive use of infrastructure systems and supply chains, the movement of skilled staff between firms, and improved rates of collaboration and innovation.
• Efficient vehicle movements, as passenger and freight movements, are more contained, given the proximity between transport origins and destinations.

An example of real but unintended consequences

It’s hard to appreciate the scale of unintended consequences until they happen. It wasn’t until recently that I fully appreciated how competition for industrial land in established suburbs has widespread implications.

This dawned on me when an inner-city council asked me to examine the costs and benefits of providing a depot for its civic and/ open space maintenance contractors. My initial thoughts were: Why would council provide depots for its contractors? Isn’t it up to them to secure their own sites? But after we engaged with our client, surrounding councils and prospective maintenance contractors, it became clear that:

1. The contractors often secure depot sites once a service contract is won. Consequently, the costs of depot sites are usually passed directly onto councils via contract pricing rates.
2. Depot locations influence transport costs, which can escalate rapidly given the need to make return trips during and at the end of each day. These costs accumulate through staff downtime, vehicle operating costs and, when relevant, road tolls.
3. When depot sites are far from the municipality they serve, transport times can adversely affect contract service levels through the enabled productivity of contractors and emergency response times.
4. Appropriate sites—at least 5,000 sqm in area, industrially zoned and within 10-15 km of the municipality—are extremely difficult to secure.

To test the array of impacts for Council and its residents, we developed the following scenarios:

• Scenario 0: Council retains its existing depot, so maintenance contractors have guaranteed accommodation within the municipality
• Scenarios 1 and 2: Council sells the depot, meaning maintenance contractors must secure their own sites, which were assumed to be located within 45- and 60-minute travel time of the municipality, respectively.

After running the numbers on the land, construction and travel costs passed onto contractors, we found that Scenario 1 would render Council $30 million worse off. In contrast, Scenario 2 would see Council bearing $45 million in additional costs. These costs would be passed back to Council through contract pricing rates. If you add on the socioeconomic costs, Scenario 1 and 2, performed even worse, recognising that Council would be forced to pass on increasing servicing costs to residents, who will also experience worsening transport congestion, pollution and road accidents.

While a very specific example, it is just one of the unintended consequences of the impact generated if insufficient industrial land is provided and maintained in established suburbs.