Another day, another “radical” proposal to fix housing supply and deliver more affordable homes. The promises – to deliver 67,000 additional homes a year, cut rents by 12 per cent and prices by $100,000 – sound wonderful. Even better, the new homes would be well located near transport and jobs.

The Grattan Institute’s latest “plan” to lift Australia’s laggard housing construction is essentially an anti-plan. It proposes allowing six-storey apartment blocks around railway stations or centres by default, and three-storey townhouses and apartments within 15 kilometres of CBDs – across the nation.

If prices fall, watch development applications follow. Credit: Louie Douvis

Grattan has sound economic credentials and its economic modelling is usually tight. But when economic modellers try to plan actual cities, reality gets in the way.

The first reality check is the bold claim that increasing housing supply by 67,000 dwellings a year (nearly a third more than our current national target) would lower prices by $100,000. Perhaps so. But the model assumes a private sector willing and able to finance new projects in a falling market. In fact, the empirical evidence tells us that building completions fall when prices stagnate – a fall of $100,000 would more likely send new development applications into freefall.

Second is the assumption that the only thing stopping extra........

© The Sydney Morning Herald