The Australian Housing and Urban Research Institute has backed mandatory affordable housing contributions in new development as a means of ensuring more people can buy their own home.

However, the institute says developers needed long lead-in times for such policies to work and governments should accept that not every development site is able to delver affordable housing.

In a new paper exploring how government policies affect development decisions, AHURI warns the current combination of fall house prices and rising construction costs is the “worst possible outcome” for new housing supply.

The paper, written by researchers from a range of universities including the University of Southern Queensland, found that variation in the end sales price is a major factor in industry profitability.

As the industry and governments come under increasing pressure to improve housing affordability, the paper’s authors argue that it is too simplistic to assume government policies will have exactly the same effect on “each and every developer and on each and every development site”.

Lead researcher, Curtin University’s Professor Steven Rowley, said the story of property development was not a case of maximising returns at all costs.

“We spoke to many developers and found the key to successful development was the ability to deliver the required rate of return while minimising risk,” he said.

Planning and policy decisions could also have a big effect on the time taken to complete construction. Shorter building times mean bigger profits.

“Even a one or two month reduction in a 24 month build time can mean the difference between a profitable and unprofitable development,” the authors said.

Rowley said the development industry needed a “steady supply” of sites that were financially viable to build on if they were to deliver housing supply to where it was most needed.

“This requires long term strategic thinking by all levels of government and a mechanism where investment in infrastructure is shared between government, landowners and developers,” he said.

He said those in government needed to understand that every site was different, and the characteristics and forecast profitability of the site would determine the effect of any new policy decisions.

“Just because a site is zoned for residential use doesn’t mean it will automatically be built out, there are many other factors at play” he said.