The Grattan Institute, an independent think tank, has proposed a bold initiative to address the housing crisis in Australia. They suggest that local governments permit the construction of three-storey townhouses on residential land within capital cities without requiring planning permits.

Additionally, the proposal recommends similar exemptions for the development of apartment buildings up to six storeys high, particularly in areas near public transport and key commercial centers.

Report authors Brendan Coates, Joey Moloney, and Matthew Bowes argue that these adjustments, alongside nine other recommendations in their report, could significantly mitigate the issues fueling Australia’s housing shortage.

“Housing in Australia’s major cities ranks among the least affordable globally,” they noted, emphasizing that “restrictive planning controls inflate the cost of new housing in our urban centers by hundreds of thousands of dollars.”

“Restrictive planning controls add hundreds of thousands of dollars to the cost of new housing in our capital cities.

“For decades, Australia has failed to build enough homes in the places that people most want to live.

“Now we have a housing affordability crisis that is dividing families and communities and robbing young Australians of their best chance in life.”

By providing default approval for those townhouses and apartments, new construction projects would be able to avoid time-consuming council and other government processes that the authors argue overwhelmingly favour a lack of development.

“The key problem is that state and territory land-use planning systems say ‘no’ to new housing by default, and ‘yes’ only by exception,” they wrote.

It would also help Australian cities significantly increase their levels of population density, which currently lag well behind those seen overseas.

The report says the proposed changes would lead to 67,000 homes being built a year, which would, in turn, cut rents by 12 per cent and reduce median prices by $100,000 over a decade.

The authors also argue the proposal could reduce Australian greenhouse gas emissions by providing more people with shorter commutes and would boost the national economy by up to $25 billion a year in the long term.

“Building more homes where people most want to live will make housing cheaper and create wealthier, healthier, and more vibrant cities,” the report states.

The recommendations come just days after new research from Cotality found the cost of a median Australian home hit a new record high of $872,538, driven by the fastest price rise in more than two years – despite interest rates remaining somewhat restrictive at 3.6 per cent since August.

The Reserve Bank and other experts have consistently warned the housing crisis has been driven by a lack of supply.

While the federal government set a target of building 1.2 million new homes between last July and June 2029, it is already lagging well behind and faces little prospect of actually hitting that goal.

The Grattan report argues part of the problem is the $3.5 billion in incentives from the Commonwealth to the states for building more homes are poorly structured.

The authors said the federal government should pay those incentives in periodic instalments rather than a lump sum at the end of the five-year period, and that it should also pay the states to reform planning controls.