Population growth is booming but housing starts remain at historic lows

According to the ABS, Australia’s population growth has hit the record books (again) with a net increase of 439,000 new residents over the year to March 2009.

To provide some perspective, in raw numbers Australia’s population growth has never been this high.  In percentage terms, population growth hasn’t been this high since the baby boom.

Population growth is fundamental to the property market as it constitutes demand for housing.  The higher the population growth, the more homes need to be built.  Unfortunately, there is a major divergence between housing demand and housing supply; there is simply far too few new dwellings being constructed to provide homes for our growing population.  The divergence becomes quite clear in the graph below:

Disconnect

Now don’t get me wrong… population is a great thing for our economy.  More people means more consumers which means more demand for Australian good and services.  Higher demand for our goods and services means a stronger and healthier economy – great!

The problem this creates for the housing market is that due to such a chronic under supply of housing there is considerable upwards pressure on housing prices and the rental market.  This means ongoing affordability pressures for first home buyers, lower vacancy rates (which are already sub3% across every capital city) and higher rental costs.

The solution to this problem largely rests with the government and our banks.  Government needs to free up more strategic land for development and remove the obstacles to development which include high fees and charges and a bureaucratic approvals system.  Banks need to start lending more freely to ensure developers have the access to funds that are required to undertake large scale building projects.

The under supply of housing in Australia is a national problem that requires a long term solution – not just grants and incentives.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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10 Responses to Population growth is booming but housing starts remain at historic lows

  1. A Middlebrook September 23, 2009 at 4:19 pm #

    The banks have lot to answer for – a recent development I was involved with required 110% of sales to secure funding from one of the big four banks. Needless to say the project didn’t go ahead…

    • Dan September 25, 2009 at 11:24 am #

      Forgive my ignorance but how do you achieve 110% of sales?

      • RP Data Research September 25, 2009 at 11:34 am #

        To put it simply, ten percent of stock is ‘double booked’ to allow for contracts that do not settle. Pretty tough rules when we need to be getting more dwellings into the market place.

    • Victor September 25, 2009 at 1:35 pm #

      A Middlebrook, what do you mean by “required 110% of sales to secure funding”. – I don’t get it. Can’t the development make unit sales price 10 % higher? The problem is not from the buyer but from the development. – lack of vacant land
      and tighten fiance(loan).

  2. Arthur Robertson September 24, 2009 at 8:18 am #

    As a rental manager on the Gold Coast we are finding vacancies can’t really get any lower (currently about 1pc). There is always going to be some churn in rental especially on the gold coast. We have seen rental rates increase across our rent book by about 20% over the last 18 months alone.

    • timlawless September 24, 2009 at 8:22 am #

      Arthur, the Gold Coast is one of the fastest growing regions in the country in terms of population. No surprises you are finding vacancies at rock bottom! Best of luck finding that all elusive rental stock. TL

  3. Brian Warrick September 25, 2009 at 10:19 am #

    How many of of these potential home purchasers would actually be in the market no matter how low house prices went?

    • timlawless September 25, 2009 at 10:26 am #

      At the end of the day they either need to buy or rent. Either way the demand pressures are likely to force up housing and rental values until the pressure is eased through more housing additions.

  4. Andrew September 27, 2009 at 11:14 am #

    I guess that the number of people per dwelling is increasing because the number of dwellings is not keeping up with population growth. Historically, how has the number of people per dwelling fluctuated relative to the gap between dwelling starts and population growth? Using a long term average of number of people per dwelling, what is the gap now between actual dwellings and expected dwellings?

  5. franklyn williams September 28, 2009 at 10:25 am #

    One of the many election promises made by Kevin Rudd in 2007 was to ease the housing crisis.
    I understand the GFC hasnt helped in terms of funding for developers but from a planning and land release perspective what has the federal & state governments done in the last 2 years to ease the shortage?

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