Victoria’s $200 billion suburban rail loop (SRL) will be a horribly expensive white elephant that will get in the way of solving housing affordability, and many other things the state needs to do.

The Albanese government should not put in a dollar, and kybosh it, asap.

The suburban underground railway is one of the biggest infrastructure projects in Australian history – much more expensive than Snowy Hydro, 1.0 and 2.0 combined – but was not recommended by any infrastructure bodies and emerged directly from the office of former premier Dan Andrews as a political fix, with no respect for proper process and little care or understanding of transport principles.

New Premier Jacinta Allen, then transport minister, was in on the joke at the time, and has doubled down rather than abandon it, as she should have done when she took over.

It is blatant political pork-barrelling, but won’t even work as that because of the unpopular high-rise buildings that go with it.

What’s planned

The plan is that the SRL will lead to a series of new “CBDs” around the middle suburbs, in line with the government’s separate housing affordability plan to give councils zoning targets to be achieved largely by raising the height limit around train stations from two to three storeys to five to six storeys.

But locals don’t want high-rise buildings in their suburbs and will be chaining themselves to bulldozers and voting out the councillors. Densifying the suburbs is a good idea, and ultimately necessary to some extent, but in the short term community opposition will create delays and uncertainty.

And anyway, how many people want to catch the train from Cheltenham to Box Hill? Or from Doncaster to Fawkner? Not many. It’ll be good for students to get from Box Hill to Monash Uni in Clayton, but that doesn’t justify 90 kilometres of tunnels. They can catch the bus.

What is actually needed to boost housing supply in Victoria, apart from more builders and less CFMEU, is for the train line to Geelong to be electrified and upgraded to a proper commuter service.

Geelong priority

Geelong has become an outer suburb of Melbourne, but the train is still run by V/Line, the country rail operator.

The diesel trains are slow, unreliable and not built for commuting. They have a lot of seats and little standing room, and carry about one-sixth the number of people as a suburban electric train.

The trains from Geelong are also the way people in the new suburbs in Melbourne’s west – like Wyndham Vale and Tarneit – get to work. There’s no other public transport – they have to catch the V/Line train from Geelong – if they can get on it.

The new housing developments around Geelong are mostly near V/Line stations called Marshall and Waurn Ponds, which also has some big shopping malls nearby.

What is obviously needed, and what housing and infrastructure experts are calling for, is that the train line from Melbourne to Waurn Ponds be electrified and turned into a fast, reliable, commuter service running every 10 to 15 minutes during peak periods.

That would not only encourage more houses to be built near the shops at Waurn Ponds, but also allow all the land between Geelong and Melbourne to be developed, from Lara to Werribee. That’s tens of thousands of hectares of mostly empty land, with an airport (Avalon) in the middle of it.

Land of opportunity

There’s also a lot of land ready to go closer to Melbourne, but the new western and northern suburbs like Tarneit and Manor Lakes are desperately under-served by public transport, and that can’t be provided now because the government is spending all of the money it doesn’t have – since it’s already $188 billion in debt – on a pointless underground rail loop around the eastern and southern suburbs in a futile attempt to win votes in those marginal seats.

On the other hand Victoria is the first state to develop a serious plan to get councils to approve more housing. But it is also doomed to fail.

The plan is to build 2.2 million extra houses over 25 years, doubling the number of dwellings in the state, by giving each local council a stretch target for rezoning land, especially height limits around train stations.

It’s a good idea, but there’s no penalty to support the targets, and even if they defy the NIMBYs and do the rezoning, neither they nor the state government builds houses, developers do – if builders can be found, that is. Construction industry insolvencies increased 33 per cent last year.

Price of progress

More importantly, developers want to maintain prices so they hold back zoned land, which is one of the many causes of the housing affordability crisis.

Victoria’s new 27-year housing target would require an average of 88,000 new dwellings a year to be built.

Dwelling completions in Victoria over the past 10 years have averaged 35,500 a year, less than half what’s needed.

Will developers willingly double the rate of construction? Only if demand has more than doubled, so they can ask high enough prices to pay the (very high) state taxes.

But Victoria’s target has been set with no reference to expected demand – it’s just a round number for the press release and to provide the starting point for council targets.

Supply and demand

Australia needs two decades of oversupply of housing to stop prices rising and bring affordability back into line, but that is definitely not what developers want, and they control the supply of houses, as opposed to zoned land.

So what is Victorian housing demand likely to look like?

Housing demand for the whole country between 2007 and 2019 was about 150,000 a year from immigration and natural increase. (In the past couple of years it’s been double that because of the post-pandemic immigration burst, versus dwelling completions of just 114,367, which is why prices began rising again in January 2023, even though interest rates had been increasing for nine months).

Victoria’s population is 25 per cent of Australia’s but growing quickly so let’s assume a share of 30 per cent of new housing demand.

Immigration is declining but will stay fairly high because of persistent staff shortages, which implies housing demand in Victoria of about 50,000 dwellings a year over the next decade or two.

And while I might think building 88,000 places a year, 76 per cent more than likely demand, for 25 years would be a very good idea for prices and affordability, developers would not agree, and they decide what gets built.

Unless, of course, governments understand that we have a market failure and step in.

Alan Kohler writes weekly for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor