NSW is the epicentre of a long-term public policy disaster in housing that will have a major impact on Australia’s recovery from the recession.

The Federal Government can play a role at the margins, but the only solution to the problem lies in Macquarie Street and, perhaps, in the wider NSW electorate.

This graph shows housing and other dwelling commencements in NSW over the last thirty years. Despite wide variations, in the ‘80s and ‘90s housing commencements essentially moved around a band of 6-7,000 a quarter. The GST caused a spike and then sudden drop across the country, and NSW recovered like other states, but then, inexorably, began to decline. Non-house dwellings, which had been growing as a portion of the total NSW housing stock, similarly peaked and then began falling with housing commencements.

The problem lies in the lack of land released by the NSW Government and NSW’s disastrous planning regulatory system, which makes life immensely difficult for developers.

This is not intended as a defence of developers. The word itself is halfway to becoming a byword for corruption and links with organised crime in NSW, like “racing identity” was back in the 1980s. But that’s primarily because local and State Governments impose regulatory processes that depend heavily on subjective, case-by-case judgment by elected or non-elected officials, providing multiple points where unscrupulous developers are tempted to obtain a competitive advantage by interfering in due process.

It’s something of an Australian characteristic, actually: a tendency for governments to massively intervene in certain industries while both government and industry like to pretend it can continue to operate like a free market. Think health insurance, or child care. The outcome is rarely good for anyone.

There’s also a basic community resistance to development, except of course when the development in question is someone’s renovations, at which point all regulatory approvals suddenly become unnecessary “red tape” and “bureaucracy gone mad”. This reflects an ignorance of the connection between population growth and economic growth, which partly fuels the standards of living, and rising house prices, of people objecting to development. It also reflects outright NIMBYism.

The view – if I can generalise outrageously – tends to be that expanding populations can live in ever-expanding, ever more remote fringe suburbs, rather than in established suburbs. Watching protestors, including the requisite “television personalities”, from Sydney’s North Shore marching to Parliament House to protest the death of democracy a fortnight ago, one was left with the clear impression that it wasn’t so much the links between development and corruption they were worried about, as the likelihood of medium-density developments in their leafy suburbs.

The much-maligned Frank Sartor understood this as Planning Minister, having wrestled with such issues as Lord Mayor of Sydney for years. In a very good speech at Sydney University back in April, Sartor broke down the different components of the way development was regulated in NSW. He pointed out that the idea of taking politics out of regulating development was absurd, because resolving the conflict between differing community interests was innately a political task; the issue was at what point politicians played that role.

He also noted that the community rarely displayed any interest in the development of planning and building regulations until they got angry about a development directly affecting them.

Moreover, over the last two decades due to cases in the Land and Environment Court, as well as the actions of Councils, community expectations about their role in determining applications have grown considerably. So much so, that in some Councils political pressure has a greater influence on planning and development decisions than proper planning considerations. This has made planning and development decisions very unpredictable, and time consuming.

In short, who wants to obtain finance to develop property if planning decisions are essentially political arbitrary?

Sartor’s argument — partly reflected in the controversial changes to the NSW planning legislation he introduced – is that communities need to be involved in the development of planning and building regulation by local authorities, rather than waiting until a particular development raises local hackles; there needs to be greater uniformity both of building and planning regulation and public consultation processes, assessments need to be transparent and most of all need to be made by independent panels rather than by politicians.

Of course, the result will still be community anger because of the default position of voters against development. Much of the bitterness directed at Sartor as minister was over his “call-in” powers, where decisions were removed by local councils more easily influenced by angry communities. But transparency will remove the stigma of political interference, and independent assessment will provide greater certainty for developers and those who finance them.

Needless to say, that doesn’t address the core issue of the perceived corruption of political donations by developers. That can only be resolved by a ban on political donations of any kind and public funding for political campaigns. And that won’t be popular with voters either. But currently there is minimal public confidence in the relationship between politicians and developers at either local or State government level.

Sartor, of course, came a cropper not merely within the ALP Caucus but at the hands of Justice David Lloyd, who at the end of August launched a scathing attack on his role in “land bribes” in a housing development at Catherine Hill Bay. The judge concluded that Sartor had, as Planning Minister, failed to properly fulfil his duties because of his support for a swap of environmental land for development approval. Sartor has since strongly defended himself against the judge and argued that land swaps have a long and successful history under several governments.

Part of the reason Sartor wound up so despised as Planning Minister was because he refused to let NSW’s parlous performance on housing continue. Voters didn’t like it. But most voters will never like development. There are a minority of voters, usually Greens, who accept that cutting population growth will have consequences for economic growth, and welcome it. But most want the benefits of population growth without the costs. The NSW Government, regardless of who leads it, has a huge and critical task in reversing the constant decline over this decade of housing construction in that state.