The Government's take on housing supply

The Federal Government’s National Housing Supply Council released their second State of Supply Report this week.  Probably the most important finding of the 228 page document was the estimate that nationally there is a cumulative undersupply of 178,400 dwellings. 

The greatest undersupply in dwellings was found to be within New South Wales (57,600) and Queensland (56,100).  The states with the smallest estimated shortfall in housing were found to be: South Australia (100) and Tasmania (1,000).

National estimated cummulative housing undersupply

Cummulative supply gap by state

Source: rpdata.com, National Housing Supply Council

The National Housing Supply Council estimates that by 2014 the gap between supply and demand will increase to 308,000 dwellings nationally.

The report also looks at how the individual states have gone in meeting their housing requirement.  During 2009, not one state met their requirement for cumulative housing demand.  In the worst cases the Northern Territory only met 38.8% of its demand, New South Wales met only 81.1% of its demand and Western Australia met 81.5% of its demand.  Nationally, there was a shortfall of 14.7% in housing to meet demand during 2009.

Cummulative housing supply not being met by state – 2009

Supply gap

Source: rpdata.com, National Housing Supply Council

So why is there such a significant shortfall, well it comes down to supply and demand.  On the supply side we have the following factors at work:

  • Not enough new dwellings being constructed
    • 78,800 too few dwellings last year
    • 178,400 too few dwellings since 2001 cumulative
  • High development costs (land cost, government taxes and levies, professional fees, construction, internal costs and interest)
    • To develop a two bedroom unit the development cost ranges from $468,000 in Adelaide to $554,000 in Sydney
    • To develop a 3 bedroom home within a greenfield site ranges from $370,000 in Brisbane to $561,000 in Sydney
  • High infrastructure costs / contributions – roads/water/sewage/ etc
  • Insufficient land availability and inefficient land release processes
  • Insufficient infrastructure linking greenfield housing releases
  • Banks unwillingness to lend for new development in the wake of the GFC (particularly for off-the-plan units)

 

 Looking at demand we have the following factors at play:

  • Record population growth (an additional 451,900 new Australians over the year to Sep ‘09)
  • An additional (estimated) 205,900 new households
  • 127,100 new dwellings (after adjustment for demolitions and second homes)
  • Strong employment environment – the national unemployment rate has averaged 4.8% over the last ten years
  • Strong investor demand since 2001
  • Consumer preferences – desire for large and modern homes
  • Rental market – ongoing rises in rental rates (about 10% per annum over the last three years)

Demand is clearly outstripping supply and creating greater competition for available properties which in-turn leads to price increases.  The big concern of course is how high is too high.  It is likely there will come a point where prices get too high and people will choose to live their lifetime renting rather than owning their own property.  The issue then being, who can afford to own these properties that people choose to rent, investors, the Government?

It’s clear that action needs to be taken to deliver affordable housing and plenty of it and not just on the city outskirts in areas close to employment nodes and barring that close to amenity which enables residents to get to and from their place of employment efficiently.

Clearly housing supply is becoming a big issue and one that just can’t be ignored.  With prices continuing on their upward climb and affordability set to worsen as interest rates increase, housing supply and affordability may be high on the political agenda in this election year.

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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One Response to The Government's take on housing supply

  1. Jamieson Currie April 30, 2010 at 12:24 pm #

    Most issues on both the supply and demand sides of the equation cannot be changed quickly (building houses takes time), and some we souldn’t want to change (strong employment market and economy generally).

    The government could make a significant impact on the equation relatively quickly by reducing the level of immigration. A recent House of Lord committee in the UK examined the issue of migration and economic pros/cons to the UK.
    http://news.bbc.co.uk/2/hi/uk_news/politics/7322825.stm
    Some key findings included:
    immigration was fuelling house prices
    they rejected claims by ministers that a high level of immigration was needed to prevent labour shortages as “fundamentally flawed”

    Obviously some immigration is necessary and I think it’s a good thing. However, increasing the population by 500,000 per year has a big impact on house prices and can be very easily adjusted to a more appropriate level. If, after another 12 months we have worked on other measures to provide greater supply of housing (and infrastructure), then the immigration levels can be increased accordingly.

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