Explainer: Planning and building approvals

There is widespread confusion in policy debates about housing supply and price when it comes to the process of housing development, specifically, who chooses to develop housing and how that housing gets approved by relevant public agencies. The first confusion is that is it commonly assumed or implied that the choice to build housing is made by builders of housing, the construction companies, who want to maximise their turnover. This is wrong. Only property owners can choose to build new homes. The incentive of property owners is not to maximise the rate of new dwelling development, but the total economic return on their property rights over time. The second confusion is to ignore the difference between development approvals (DAs) and building approvals (BAs), sometimes known as construction certificates. Development approvals are given to property owners who choose to apply to assess their proposed project against the planning system if needed for their intended use. They happen at an early stage in the process of developing property, usually prior to pre-sales. They are flexible and while bound by zoning codes, processes exist in the planning system to permit projects that exceed zoning codes, and a property can be granted multiple planning approvals over time. Across the property market, a large buffer stock of projects with development approval exists at any point in time, which allows developers to easily adjust sales rates, and later construction rates, to match highly variable market cycles. Building approvals happen later in the development process, after a planning approval (if required) and after pre-sales have demonstrated market demand. It is the last regulatory step prior to construction and a buffer stock of these approvals is not maintained.